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hey guys mike here so i was the catholic archives about once a month she puts you know something out where she'll talk to an economist usually from piper sandler about their thoughts on inflation where it's going what they predict to be happening the stuff about the fed and what they're doing with their tightening and companies profitability and stuff like that and for those who don't have 45 to 60 minutes to sit here and watch this kind of commentary i like to condense it down for you and so hopefully this video is no more than 12 to 30 minutes long i hope total and so i'll try to get it down for you and you know upfront i'll just say i really really appreciate the stuff they put out i hope they these two ladies are correct like i really do hope they're correct because it would be a big boon for obviously our personal pocketbooks plus our investments as well if they're correct you know let me know in the comments what you think because you hear this and they're going to go over inflation what the fed's doing i agree with them on the mistakes that is making and have made you know also what's going on with inventories for companies we heard a lot about this last week what that means as far as how it's going to affect inflation the dollar and then at the very end she's she says something which you know we'll see if it happens i always find it interesting when she brings up this kind of stuff and um you know we'll see but anyway if you're getting out of it hit the like subscribe button i really do appreciate it try to share the video guys and i appreciate all your support at the channel here and let's get into she's talking about inflation and then the fed raising rates and kind of what that's done and what it's going to do and where she sees it going from here it doesn't happen immediately it takes time it takes roughly a year to change behavior and so we are right now in a period where the economy is already starting to slow you've certainly seen that with a lot of company news where their earnings are starting to get hit and overall economic activity is starting to slow um and now the fed is starting to raise rates that's very different when they last had a tightening cycle which was back in 2016.
they were raising rates into an accelerating economy and that gave them a couple of years of higher interest rates without really disrupting the markets or economic momentum that's not the case today the economy is already slowing why is it already slowing again because global central banks have been tightening for a year you also have higher bond yields you have higher oil prices all those things lead growth and they are now in the prospect of slowing economic activity and now the fed is stepping in and raising rates we would argue they're late uh and these these higher interest rates that they're putting in place risk creating financial strains um and in turn we don't think the fed is going to be able to raise rates as much as they currently suggest say around 200 basis points um because between now and then there's going to be clear signs that the economy is slowing and even inflationary pressures are going to are going to come down so we will get another rate hike most likely in february and probably even in august we're not so sure how aggressive that's going to be able to be in in the fourth quarter because we think by then it's going to be pretty clear both growth and inflation are slowing pretty uh are slowing pretty uh significantly yeah uh nancy i am i'm also struck the fed is really focused on the us but uh i think europe is in a recession china some of the numbers coming out of china are shocking as well that has an impact on the rest of asia so their what they're facing is a recession and their currencies are dropping their currencies are dropping relative to the dollar which means their purchasing power is going down but it also means that some of them are tightening more because their currencies are falling against the dollar so it's a bit of a vicious cycle and as nancy says i agree with you nancy we are not alone many people are thinking about the us in isolation uh we've already had one quarter of negative gdp which most people brushed aside saying oh that's uh that that's a fluke and uh you know i don't think i think that was a real number and we should not dismiss it so uh agree with you totally uh nancy and and i would agree with you that europe isn't already in a recession uh to be sure and don't forget the strength in the dollar to the extent their currencies are weaker the strength in the dollar is is actually uh another disinflationary event here for the united uh for the united states so that just further increases the odds that we can see inflation slow uh pretty pretty quickly in the old days you know in past cycles many people thought that the dollar going up was a was the same as no monetary tightening it's a disinflationary force and it's up 15 since the bottom which is a huge increase for the dollar in such a short period of time and really hurts emerging markets absolutely the the dollar going up means that our imports from abroad are going to be cheaper and just makes it easier and at the same time the dollar going up further hurts corporate corporate profits and i don't keep up with the data over in europe enough to know but you know if you're watching this from europe canada wherever you know is your country already in a recession i mean that's what's happened i can absolutely believe it and that right about the us dollar i don't really study the dollar too much but it has absolutely been skyrocketing and it does hurt corporate profits it does absolutely uh hurt other countries as well and comes the import export business and so you know it's one thing in a way i'm i guess the way we got we got that going for us somewhat but anyway um you know let me know your input on that the next one she starts talking about is these inventories which we got to hear last week during the big retail earnings calls that you know one reason they just got crushed because they ordered so much stuff and a lot of the stuff was the wrong stuff the consumers switched sentiment and started ordering different things and stopped ordering plasma screen tvs or you know high definition tvs computers and all the big stuff and started actually buying luggage and outdoor furniture and things like that what will companies do what kind of companies deal when they have too many inventories well walmart just said it they're rolling back prices so kathy i don't know how long it's going to take the fed to realize that we think they're looking at specifically core cpi um and they need a string of numbers where core inflation on a month to month basis is something closer to 0.2 by core i mean x food and energy which is what the federal reserve tends to look at uh and they want that to move down toward two percent on a sustained basis we think they're going to get there because companies are already here in may starting to cut prices we've already seen used car prices come down they became too expensive um and so we think as we go through the summer we're gonna start to see these point twos maybe not april uh pardon me maybe not may uh but as we get into june july we think we're gonna start to see another shift down in inflation because companies have to get rid of all this stuff and they're going to start to cut price well one of the things that would be interesting to know is uh have we ever seen inventories target or or walmart have their inventories ever increased this much uh so targets inventories their unit sales were probably down uh 3.3 percent uh was the dollar value but in units probably down uh and their inventories were up 42 so take away inflation that's 30 to 35 percent on a year-over-year basis uh i do not believe we've ever seen that before and these are well-managed companies and even with marking down in april these are through april uh their inventories were up 42 walmarts were up 33 home depots up 32 and so this kind of leads us into you know what does this economist see as far as these inventories the data that's been coming out as far as inflation what they see projected through the rest of the year and what can we see by the end of the year and they are definitely optimistic to say the least what the fed is looking at is what those readings do sequentially and so that 0.6 uh definitely open the door for the federal reserve to do 50 basis points and to tighten again probably another 50 uh as we go into uh the summer uh that 0.6 month on month is a very very high number they are looking for that number to move down towards 0.2 percent and given the backdrop that we've just uh highlighted we think that does start to unfold in the summer uh near-term hotels airfares unfortunately may continue to go up i don't know if you all have noticed they're egregious um but again this is a very different backdrop than 2021 uh the travel and leisure industry doesn't have that consumer with a with a stimulus check with a lot of savings with wages going up aggressively and employment very very strong income growth for the consumer nominal income growth for the consumer this year is down to four percent last year it was double digit 10 to 17 um that gave consumers fire power to for temporarily anyway to pay higher prices they don't have that today so we're actually worried that the consumer i call it you've got a new smarter consumer um that you may take a vacation because you haven't had one in in a couple of years but as far as really splurging on vacations they're pretty much making it possible because prices have gone up so much as your income has gotten hit significantly that along with uh the excess supply we have today um in all of all the goods we do think there will be a sharp slowdown in inflation back down uh below two percent as we move through the end of as we move through the end of the year and so i understand that right there is actually way below what the fed is projecting they project is still going to be over four percent by year-end she's saying by the end of this year we're gonna be below 2 i mean like i said i hope she's right but to me that is so beyond optimistic because you would have to have a huge turnaround in what's going on with these supply chains especially fuel for crying out loud my god like eventually energy has to peak and start to come down dramatically for that to ever actually happen but you know hey it will be good for us so i'm certainly not rooting against it let me tell you that right now and then to end this you know obviously kathy woods is all about innovation and she makes this comment because they've been talking about it for a little while here about us actually starting to make things in the united states again i think uh nancy's idea of this reassuring the the manufacturing renaissance here in the united states is going to be a boon for our country it's going to hurt other countries but a boon for our country i think that's one of the reasons the dollar is going up and uh i think that our productivity gains are going to be enormous because you know we lost a lot of the industrial world to other countries now we can rebuild it here with state-of-the-art technology and that's very exciting from a productivity point of view and of course you would think we would start doing that after this nightmare of a disaster has seen what happened to depend on one country to make probably the majority of your stuff but also understand you know this ain't going to help an appointment she's not talking about actually human beings going into factories making stuff like we used to right she's talking about automation ai machines actually doing the work okay and that'll help with productivity and so you know it'd be great to do it but obviously it sucks for employment i'm sure maybe they'll invent some jobs or something maybe you'll be the lucky one that is setting a booth somewhere monitoring these things you get to fix them but it's not human beings standing on an assembly line or doing anything like that okay and so you gotta make sure you keep that in mind and so you know this is what they talked about in a nutshell as you can see i mean these two are in lockstep and it's a very aggressive agenda or you know predictions they have that we're gonna be below two percent inflation by year end and um you know it's because the inventory and all that stuff and look like i said hope they're right be great for us if they were you know maybe the fed's wrong again cause they've been wrong this entire time so i don't really have a lot of faith in them at all but you know this is what also people you know would think like if they can get because there's there's two stories to talk about here one is you got that camp and then the other camp is inflations of sticky it's not going away for years okay and the truth is neither camp knows yet we're going to wait and see i think when you you know when you get to your end we're going to know is this really sticky or is it not right because now the fed has just started fighting it this year right rolling off the bounce sheet doing stuff they should have been doing last year and so we're going to get to see how stick it is and how sticky it's not all right so hopefully you got something out of it hit the like subscribe button if you did guys and i'll see you guys later
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